ISSI Acquired: An Analyst’s Thoughts

TORONTO — It was a lot like the last hour of an eBay auction: two bidders try to outdo each other at the last minute to win a coveted item.

In this case, the prize was Integrated Silicon Solution, Inc. (ISSI) and the suitors were Cypress Semiconductor and Uphill Investment Co., a consortium of Chinese investors, which ultimately won with the highest bid.

In the short term, it looks as like business as usual for ISSI, which now has new owners that are not another memory vendor or even a technology firm.

“It was definitely an auction,” industry watcher Jim Handy, principal analyst at Objective Analysis, told EE Times last week about the outcome. “It was a tempest in a teapot. I think when ISSI and Uphill entered discussions, they though it was a done deal.” In the end, ISSI got a better price for shareholders, Handy noted. Uphill ultimately paid $23.00 per share in cash after initially offering $19.25 per share in March. The final deal values ISSI at $730.5 million.

He said ISSI was likely a particularly desirable acquisition for Cypress because of its patents. “I haven’t looked at ISSI’s patent portfolio but I bet it’s expansive.” He said Cypress is keen to grow its patent portfolio, and return to becoming a growth company because it’s in markets that are shrinking, such as SRAM. Earlier this year, Cypress said it was committed to the SRAM market and that it saw opportunities in new markets even as existing ones where shrinking.

Based in California, ISSI products include SRAM, DRAM and NOR flash with a focus on the automotive, communications, digital consumer, industrial and medical markets.

ISSI had considered an offer from Cypress, but also raised anti-trust concerns and the costs to clear a potential deal with regulatory authorities in the U.S. and Germany in particular given that the combined entity would control a great deal of the SRAM market. Handy said anti-trust concerns usually arise when two companies in the same business join forces, but he believes the merger would have sailed through. Such a combination in the DRAM space might have raised red flags, but not SRAM, as there are more players, including GSI and Winbond.

Handy said the net result of the Uphill acquisition is a change in ISSI’s ownership. “Had Cypress acquired it, I would have expected to see consolidation and a company trying to find synergies." For example, both use a fair amount of foundries and together they could have negotiated better prices on wafers.

While SRAM was the catalyst for the anti-trust concerns, ISSI has other technologies, including flash and DRAM, said Handy. “Something I think ISSI could have brought Cypress is a greater presence of in China."

In the long term, he said it will be interesting to see how an investment firm handles ownership of a semiconductor company. “In the early ’80s a number of non-semiconductor companies invested in chip firms in Silicon Valley," recalled Handy. “What the industry found out is that they didn't have the skills to run these companies. I certainly hope it doesn't turn out like that."

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Not sure it's that simple.Spansion (now part of Cypress) has the 3D NAND collaboration with XMC in Wuhan, the same XMC that is supposed to be the future of DRAM in China. ISSI seems destined to be part of the foundation of DRAM production in China and maybe Cypress wanted a larger part in that and to work with XMC on both 3D NAND and RAM.